DETROIT — General Motors‘ plans to diversify its business through trendy industries equivalent to ridesharing and other “mobility” ventures or startups have largely fallen flat because the automaker began investing in such growth areas in 2016.
Cruise, its majority-owned autonomous vehicle subsidiary, is increasingly looking prefer it may be next.
The unit has quickly gone from one in every of GM’s biggest business opportunities to a growing liability. Cruise, of which GM owns greater than 80%, has confronted a wave of problems and investigations sparked by an Oct. 2 accident wherein a pedestrian in San Francisco was dragged 20 feet by a Cruise self-driving vehicle after the person was struck by one other vehicle.
Because the incident, Cruise’s robotaxi fleet has been grounded, pending the outcomes of independent safety probes. Its leadership has been gutted, including its cofounders resigning and nine other leaders being ousted. GM is massively cutting spending and growth plans for the business, including pausing production of a latest robotaxi. Local and federal governments have launched their very own investigations. And the enterprise is shedding 24% of its workforce.
GM, like other corporations, has quickly shifted from attempting to impress Wall Street with growth initiatives, including generating $80 billion in latest businesses by 2030, to refocusing efforts on core business to generate profits amid economic and recessionary concerns.
Despite all that, GM appears to consider it could eventually move forward with Cruise. GM CEO Mary Barra said Dec. 4 during an Automotive Press Association meeting in Detroit that the automaker is “very focused on righting the ship” at Cruise.
“We’re confident within the team and committed to supporting Cruise as they set the corporate up for long-term success with a concentrate on trust, accountability and transparency,” GM said Thursday in an announcement related to announced layoffs at Cruise.
Past projects
But there’s growing concern across the industry, not only with GM and Cruise, in regards to the viability of autonomous vehicles, or AVs, as a business as a substitute of as a distinct segment science project.
“AV technology, while they’ve made a number of progress with it, is unlikely to be profitable anytime within the foreseeable future, actually not this decade,” said Sam Abuelsamid, principal research analyst at Guidehouse Insights. “In the event that they must make cuts, robotaxis appear to be the apparent place to try this.”
Some Wall Street analysts are holding out hope that GM and Barra can turn Cruise around and eventually refocus on growing the business, because the Detroit automaker takes a more hands-on approach with the corporate. Several expect updates at an investor event in March.
“The plan to pause Cruise operations and reduce spending on Cruise in 2024 are only first steps. Once more, we expect these concerns to be addressed and cured on the capital markets day in early 2024 but expect skepticism to stay within the interim,” Morgan Stanley analyst John Murphy said in a Nov. 29 investor note.
If GM cannot turn the operations around, Cruise would join an inventory of its past defunct growth businesses, partnerships and investments since 2016. They include:
- 2016-20: A “Maven” mobility brand that offered carsharing from the corporate in addition to peer-to-peer
- Starting 2016: Partnerships with Uber and Lyft, including a $500 million investment stake within the latter. (GM made $78 million off its Lyft investment.)
- 2017-22: In-vehicle Marketplace app
- 2017-18: Book by Cadillac, a vehicle subscription service
- 2018-20: E-bikes
- 2019-21: Tie-ups with EV startups Nikola and Lordstown Motors, wherein it had an equity stake as a part of a deal to sell an Ohio plant, in addition to a reported investment in Rivian that ended up not happening
The automaker also has discussed personal autonomous vehicles as early as mid-decade and evaluating “flying cars” for the mid-2030s, amongst other things which have been de-emphasized more recently. In 2021, the corporate said it had about 20 initiatives in its pipeline that targeted $1.3 trillion in latest total addressable markets.
“Cruise has been each vastly more ambitious and vastly more costly than any of those other programs,” Abuelsamid said. “It actually could find yourself on the trash heap. … They have to take a protracted hard have a look at what they need to prioritize.”
Not all of GM’s noncore businesses that were launched lately have failed. GM Energy and the BrightDrop industrial EV unit proceed to operate; nevertheless, GM recently brought BrightDrop in-house from being a completely owned subsidiary.
GM’s financial arm continues to operate an insurance business that was launched in late 2020 as a part of its growth initiatives.
“It’s about reprioritizing … and ensuring that you simply’re reducing what you need not do anymore,” GM CFO Paul Jacobson told media Nov. 30 in regards to the company’s overall cost-cutting measures, including “considerably” scaling back its energy and BrightDrop units.
Brightdrop EV600 van
Source: Brightdrop
Jacobson said the change in Brightdrop was to scale back redundancies and cut costs, as business cases have modified. BrightDrop was expected to generate $1 billion in revenue this yr; it’s unclear where that stands.
Jacobson declined to reveal whether GM could bring Cruise into the automaker, which has its own autonomous vehicle unit and recently appointed Anantha Kancherla from Meta Platforms to the newly created position of vice chairman of advanced driver-assistance systems.
GM continues to operate a military defense unit and fuel cell business which have each recently announced latest contracts or partnerships. The corporate doesn’t report revenue or earnings for these units.
GM says it stays bullish on its software initiatives and investments in joint ventures for EVs — for instance, an investment projected to exceed $1 billion with POSCO Future M to extend production capability of key battery elements in North America.
Are autonomous vehicles viable?
GM acquired Cruise in 2016. On the time, the corporate was attempting to quell Wall Street concerns that traditional automakers would not have the opportunity to compete against emerging competition from Apple and Google, in addition to emerging “mobility” corporations equivalent to Lyft, Uber and a litany of other startups that were expected to disrupt traditional automotive ownership.
But commercializing autonomous vehicles didn’t pan out for many, and it has been far more difficult than many predicted even a number of years ago. The challenges have led to a consolidation within the sector after years of enthusiasm touting the technology as the subsequent multitrillion-dollar marketplace for transportation corporations.
Cruise was considered one in every of two front-runners left relating to robotaxis within the U.S., together with Alphabet-backed Waymo, which can also be operating limited self-driving fleets for consumers. Amazon-backed Zoox also continues to check autonomous vehicles in several states.
Renderings from GM of the “Cadillac halo portfolio” that features concepts of an autonomous shuttle (right) and an electrical vertical take-off and landing (eVTOL) aircraft, also generally known as a flying vehicle.
Screenshot via GM
Others competitors equivalent to Lyft, Uber and Ford Motor/Volkswagen-backed Argo AI have ended their autonomous vehicle programs, citing the huge investments needed for an unprofitable and untested industry. Stellantis has announced partnerships with BMW and Waymo, but nothing along the lines of Cruise and Argo.
“I would like to know what must be done to get Cruise back running industrial services for consumers in a secure manner,” said Morningstar analyst David Whiston. “After which by not operating the patron operations and, perhaps, not growing in other cities in the meanwhile, how much costs are you able to save? Since the losses have gotten pretty big.”
GM’s investment in Cruise and its share of the corporate’s losses have cost the automaker greater than $8 billion since 2016, in keeping with annual public filings. The losses have been increasing, including $1.9 billion through the third quarter of this yr.
After purchasing Cruise, GM brought on investors equivalent to Honda Motor, SoftBank Vision Fund and, more recently, Walmart and Microsoft. Nevertheless, last yr, GM acquired SoftBank’s equity ownership stake for $2.1 billion.
GM has said it’ll significantly cut spending on Cruise. Barra, who leads Cruise’s board of directors, declined to say on the Dec. 4 press association meeting how much money the automaker is willing to spend on Cruise going forward until it completes its assessments and has a plan to maneuver ahead.
Cruise had $1.7 billion in money to finish the third quarter, enough to last through a majority of next yr at the present money burn rate.
Barra and other proponents of autonomous vehicles have consistently touted that self-driving cars have the power to significantly reduce crashes and roadway fatalities, while also providing transportation for many who may not have the opportunity to drive themselves.
“We’ll work through the challenges now we have right away at Cruise,” Barra said Dec. 4. “We now have to have the best plan.”
– CNBC’s Michael Bloom and Hayden Field contributed to this report.